ANKARA, April 11 (Reuters) - A once thriving trade in diesel imported to Turkey from northern Iraq by truck has dwindled to zero, a senior Iraqi Kurd based in Ankara said on Thursday, a move that cuts off a source of cash for Baghdad.

The diesel trade, which has involved as many as 500 trucks a day in previous years, was a technical breach of United Nations sanction imposed on Iraq after the 1991 Gulf War.

Turkey's western allies turned a blind eye given the economic benefits to the impoverished southeast of Turkey as well as the Kurds in the breakaway enclave in northern Iraq.

The illicit trade was one of the few sources of direct revenue for Iraqi President Saddam Hussein outside the control of the United Nations. Iraqi Kurds in the enclave outside Baghdad's control also benefited from levies on the diesel.

"This is effecting everybody on both sides of the border (with Turkey)," said Safeen Dizayee, the Kurdistan Democratic Party's representative in Ankara.

"We have not been given any particular reason," he said. "We have sufficient diesel to supply the Turkish truck drivers but they're not coming. The bulk of the trade from the border was based on diesel which has dropped to zero," he told Reuters.

Turkish truckers told Reuters that strict limits and charges imposed by officials at the Turkish border post at Habur had made the trade impractical. "We can't even cover our costs any more. Profits are way down and we've decided not to go any more," said Ahmet, a truck driver from the border town of Silopi, who did not want to give his surname.

He said border guards imposed limits on how much diesel each truck could bring in and levied heavy charges.

But a Turkish border official gave another explanation. "There is no diesel so we are not sending anybody," he said.

Major fuel distributors in Turkey, including Shell and Petrol Ofisi, have been pressuring the government to halt the trade which they say amounts to unfair competition.

Northern Iraq has been outside Baghdad's control since the Gulf War and is administered by the KDP and its rival party the Patriotic Union of Kurdistan (PUK).

Dizayee said the diesel trade had been halted by Iraq after September 11 in what traders saw as a move to build up domestic stocks. Trade resumed for a brief period in January, when up to 100 trucks a day were allowed to cross the border.

"For a short period from early January there were some trucks getting across, probably around 10 percent of previous quotas, but now it's zero," Dizayee said, adding that Iraqi Kurds had been told no reason for the halting of the trade.

CRUDE TRADE

Turkey also imports crude oil by road tanker from Iraq, outside the U.N. programme, in a trade that Dizayee said was a direct contract between Baghdad authorities and Turkish refiner Tupras, with little revenue going to the Iraqi Kurds.

Tupras has said it wants to import four million tonnes of crude by that method this year compared to 2.6 million in 2001.

The crude oil trade continues despite Iraq's announcement this week that it would halt oil exports as a gesture of support for the Palestinians. Tupras said this week Iraq's decision would not effect Turkey or Tupras.